Loan Mods and the Homeowner

Currently, there are approximately 7.5 million homeowners in the United States that are behind on their home loans, which amounts to one in four who are underwater on their mortgage. According to First American CoreLogic, a real estate company based in Santa Ana, CA, almost 10.7 million households had negative equity in their properties. In other words, they owed more than the house was worth!

Because most homeowners don't know about loan modifications, or have tried unsuccessfully on their own to obtain a loan mod, most of these properties will slip into bank foreclosure and add to the oversupply of an already over-saturated market.

This problem is not just limited to those who have lost their jobs. Some 588,000 homeowners defaulted on their home loans last year even though they were working and could afford to make their mortgage payments. In years past, Americans did not walk away from their homes, but that trend has reversed as more and more owners who thought they were getting a bargain are now realizing that they are underwater and owe more than the house is worth.

Some of the hardest hit areas are in California, Nevada, Florida and Arizona. Take Nevada for instance, almost 30% of homeowners owe 50%+ more on their home loans than their properties are worth, making them ideal candidates for loan mods.
One homeowner put down $106,000 on a $530,000 property back in 2004 that now has a value of less than $300,000. A rarity, he is too honest to walk away.

For most homeowners, this is where loan mods enter the picture. If they can obtain a loan modification, and sometimes a debt settlement, they can retain their homes if the loan is modified and their monthly payments are reduced. Many homeowners have adjustable mortgages and can get them changed to a lower fixed rate thru a loan mod.

Why not just refinance? Well, most are so far underwater, or have damaged credit, that they cannot refinance their mortgage and are therefore looking to debt settlement and loan modifications to get a new start on life. If the appraisal was irrelevant, they could make some headway, but that is what got us into this mess in the first place.

At the end of September, homeowners who were 30-days or more behind on their mortgage payment (or in foreclosure) totalled almost 7.5 million. As these are lost to foreclosure, the supply of homes for sale will dramatically increase keeping prices down. Locally, here in Illinois, the house next to me was for sale in June of 2008 for $234,000 and is now going to auction shortly for $125,000.